Sunday, July 6, 2014

In May, I chatted with Chris Ellis, aka ChrisJ of Feathercoin, about how cryptocurrencies could change global economics and society (see my earlier related post here). What follows today is not exactly an interview, but reflections on some of the things we discussed. We talked mainly about Bitcoin. But one senses that it is Ellis's work on Feathercoin - an altcoin established on 16 April 2013 and originally developed by Peter Bushnell at Brasenose College, Oxford - that brings Ellis to some of Bitcoin's biggest questions, and indeed, to some of the biggest questions surrounding all cryptos.

For Ellis, an economy is a system of how we define ourselves in relation to time. In a June 2014 interview, he noted Mike Maloney's remark that the ultimate form of money is time, the ultimate irreversible transaction.

Bitcoin is above all a
technology of its blockchain, a time-stamped ledger either of economic
transactions, or of interactions in Bitcoin's non-currency
applications. According to Ellis, Bitcoin is really "a great big
unstoppable clock." And that means that Bitcoin represents a watershed moment, the start of a change in how we
understand time technologically, economically, socially and culturally.

Debt and inflation are the prices we pay to live on borrowed time. The economy that currently exists is an economy that borrows against
the future. It depends on an idea of conspicuous consumption running
back to Thorstein Veblen.
This model involves believing in a collective dream, signified by
spending borrowed money to fulfill a social expectation of a future life
we are schooled to want and achieve. A glance at economic trade news
confirms that mainstream financial analysts and experts are merely
biding their time for a return of consumer confidence, for a restoration
of a grand fantasy of prosperity, built on actions not yet done, lives
not yet lived, accomplishments not yet achieved - and corresponding
compensations not yet earned. Ellis remarked, "our current economy
[attempts to] brute-force a future into reality, based on what we don't
have yet ... you're subjected to the whole world of future liabilities."

That
means that developed countries currently depend on a cult of the
future, on faith in progress, on the ability to make dreams real. That
is not always a bad thing! Western philosophical, scientific and
economic systems support this mentality. They describe rational
expectations of the future, given what we know to be true in the past
and present. This attitude is arguably the source of the entire liberal political tradition through the concept of progress.

But subjecting citizens to a whole world of future liabilities is risky. The crash in 2008 initiated a growing gap between rich and poor, and between unreality and reality. The regulated economy ensures illusory stability, predictability and false manifestations of wealth, leveraged against the future. The real economy, accounting for all factors, is a very
different thing from the regulated economy, which only acknowledges
desired parts of the economic picture. When confidence in the illusion dissolves, an apparatus of political and social control is necessary to keep the system grinding forward in a way that we want it to: it must follow an artificially-propelled arrow of progress, with growth and profit moving ever upwards (well, moving upwards 80 per cent of the time, until another crash hits). The recession jarred that pre-engineered momentum; it dismantled the future many were promised, marketed in mass culture and the popular entertainment industries. The Great Recession told us: no matter how many tales you were told, the future of your dreams will never arrive. The crisis marked a moment, so to speak, of atheism about the future.

Time-orientation dictates the temper of whole societies. Today, most fixate on the future, although there are still obscure communities which focus on the past. Bitcoin marks a shift in the temporal orientation of collective mentalities from the future to the present. As a currency, Bitcoin forces people to live within their means. This is because Bitcoin will only allow transactions with what you actually have in the moment. Bitcoins might be sold and traded from peer to peer, but you can't do anything with your Bitcoins - or other cryptocurrenecies - unless your earlier transactions are already confirmed. You can only trade what is actually in your digital wallet.

Although Bitcoin an economy of the present, that hasn't stopped
some financial traders from trying to bend the new technology to mimic fiat money's futures instruments; traders expect Bitcoin to be regulated so that they can establish a fully-fledged Bitcoin derivatives market. However, a Bloomberg report confirms that these enterpreneurs are encountering problems; the feat can't be accomplished without regulations:

Even as regulators and investors struggle to grasp Bitcoin’s many uses --
including investment vehicle, payment-processing system and
money-laundering tool -- they are now confronted with the additional
complexities of an emerging derivatives market where entrepreneurs say
current rules don’t apply. ...

Patrick Murck, the general counsel for the Bitcoin Foundation, an advocacy group for the currency, said the rules will vary with the services offered.

“Financial
services that use the Bitcoin protocol can and often do fall into
existing regulatory categories,” Murck said in an e-mail. “Some uses of
the protocol may fairly be considered trading in derivatives and
regulated by the CFTC, while others likely will not.”...

The CFTC could argue that Bitcoin is a commodity under U.S. law and
subject to the agency’s rules against manipulation and fraud, according
to Salman Banaei,
Washington-based senior counsel at Norton Rose Fulbright law firm. He
said the agency, which regulates derivatives tied to interest rates and
commodities like oil and wheat, would have “clearer” jurisdiction over
futures, swaps and options linked to Bitcoin.

“For example, a
Bitcoin futures exchange in the United States, or a foreign exchange
offering ‘direct access’ to its trading engine to U.S. customers would
generally have to register with the CFTC,” said Banaei, who last year
left the CFTC, where he helped write regulations. ...

Jaron Lukasiewicz,
chief executive of Coinsetter LLC, a New York-based Bitcoin exchange,
said that his company has suspended plans to offer derivatives due to
the uncertainty around the CFTC’s intentions, plus the expense of
maintaining a derivatives-broker license. ...

Among the firms offering Bitcoin derivatives is Predictious.com, which
lets users bet on various events, such as the price of Bitcoin against
the U.S. dollar.

[Predictious creator Flavien] Charlon said he doubted that the CFTC could prevent customers in the
U.S. from using Predictious, since the online “wallets” used to hold
Bitcoin aren’t attached to a specific country, and because many
customers use Internet browsers that obscure their location.

The Bitcoin derivatives market Icbit.se
took shape in 2011 when Alex Bragin and another Russian put together a
website that now offers Bitcoin futures. Clients can borrow as much as
five times their own capital for leveraged investments, and Bragin
intends to create an options market as well.

Ellis dismisses the viability of these financial instruments by pointing to the way in which betting against the future impoverishes the human character of the economy:

The fact is the only reason we ended up with these high frequency
trading platforms with derivatives of derivatives is because the
technology amplified what it was these financiers were trying to
achieve: making money out of having money minus the human interaction
and sociability.

... [I]t's not about looking back at 18th Century Osaka and saying "how old it was back then" and "if only they hadadvanced technology then they would have known what to do with a forward contract". It's more like:

"Look at how the people in 18th Century Osaka are responding to needs within the community" and "What is the infinite is? What is true for them that is true for us?"

It's about acknowledging that the past has not
finished happening. Every single action that ever took place is still
happening, the people that existed still exist and are still responding
to universal needs that impact on us as much as on them. Just because we
don't have direct access to those events doesn't mean they aren't
safely locked away.

Back then if you lived in a village you knew
everybody. Say you were a farmer and you didn't know whether you could
take a risk on the weather this season and so didn't want to sow your
crop. Enter the speculator. Someone local with a reputation, has
disposable income and understands your business. He says:

"Hey we all share the the proceeds of your labour. I will agree to buy your rice at an agreed price and time in the future."

Thus
de-risking the farmer's position in the market. And if the weather
turned against him the contract had provisions in place for what to do
in such an event. Many times debts would be written off with nobody
needing to fall out and often they would be carried over in to future
seasons.

But why bother with all that if you can just offload
your risk to a lot of faceless foreigners? Build computerised systems
instead and that way you can just make money out of having money in a
sterile market and hope that you don't live long enough to see the
consequences?

What does it mean to build (surrender to) an economy oriented toward the eternal now? Ellis seeks other human and temporal dimensions of Bitcoin economics. Most obviously, cryptocurrencies are products of applied cryptography. Blockchains record encrypted, coded transactions. These transactions are NSA-targeted but probably NSA-impregnable (see rumours and conspiracy theories about this, here, here, here and here).

Ellis also observed that the way Bitcoin is mined - its
encrypted transactions are continuously cracked by computers solving mathematical algorithms - constitutes a predictable system which deals with that
which we don't understand.

I
suggested that mining cryptos is akin to Michelangelo's comment about
sculpting marble. The statue lies hidden inside the raw stone. By
continuously chipping away, the sculptor 'sees' the inner figure which
gradually comes to light, as though it had always slept there. The artist's exact words were:
"In every block of marble I see a
statue as plain as though it stood before me, shaped and perfect in
attitude and action. I have only to hew away the rough walls that
imprison the lovely apparition to reveal it to the other eyes as mine
see it." The very creation of Bitcoin involves a process
that hovers right on the boundary line between the known and unknown.

Unlike
the current inflationary economic system, which insists on forcing the unknown
future into the realm of present reality, thereby twisting its nature,
Bitcoin mining engages with an encrypted unknown that is currently impossible to crack in its totality. Mining
pushes into the future from the present. It offers a limited ongoing
engagement with the future through a series of mining actions, moving
forward into the future, one transaction at a time, always verified.

To build an economy around the eternal now has vast implications. It demands a philosophical shift. Chris and I both noted Buddhist and Taoist practices which focus on the present. Consider the current vogue celebrating the word mindfulness, which derives from a Buddhist practice of grounding one's consciousness on the now. I asked him: is it any coincidence that at the moment when China is about to dominate the world's economy, the philosophical and spiritual systems which most accurately address our existential circumstances in relation to technology happen to be Asian ones?

Chris also referred to Copernicus, as though, with Bitcoin, we are on the verge of moving from a geocentric to heliocentric perspective. Does Bitcoin alone constitute that shift in understanding? Possibly, although more likely cryptocurrencies, along with other areas of research and development - at CERN, in biotech, in genetics - we are moving toward one larger Millennial Heliocentric Moment from different fields, paths and angles. This could be an as-yet-unknown discovery that transforms how we think about everything in relation to time. That would be appropriate, because the new Millennium is an ardently heretical, neo-Gnostic age, in which we are all converging on the next level of awareness.

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About Me

Welcome to my blog, dedicated to the aporia, anomie, mysteries, and nervous tensions of the turn of the Millennium. I'm a writer and academic, trained in the field of history. These are my histories of things that define the spirit of our times. This blog also goes beyond historians' visions of the past, and examines how metatime and time are perceived in other media and disciplines, between generations, and in high and pop culture.